Ownership and Operation

A municipal corporation’s power to acquire, possess, and operate public utilities are governed by the provisions contained in the respective state constitutions. And it is by acts of the legislature that these provisions are put into action[i].

Municipal corporations, in the exercise of their ownership powers, are governed by the same rules that govern private individuals or corporations[ii]. Therefore, in public utility operations, a municipal corporation adopts all those measures that a private corporation adopts in its business or ownership capacity[iii]. For example, in the management and operation of an electric plant, a municipal corporation uses its business powers rather than its governmental or legislative powers. However, such business powers must be exercised for the greater benefit of its inhabitants[iv].

Generally, courts do not interfere with the reasonable discretion exercised by a municipal corporation in the discharge of its proprietary powers. Accordingly, ordinances that are enacted to install and maintain city services, to make reasonable regulations with respect to city service operation, and to impose reasonable charges on the users are treated as valid. However, upon proof of unreasonableness, such ordinances shall be struck down as invalid[v]. Courts determine if an ordinance is unreasonable or not by analyzing and finding out if the ordinance reasonably served the purpose for which it was enacted[vi].

Public utility operations are usually carried out by using municipal funds. However, a municipal corporation should not use its public fund for the operation of any portion of a public utility that is unusable to them. Even in cases where a public utility is taken for operation by the public directly, a municipal corporation should not provide its municipal funds for its operation, if such public utility is unusable to that municipal corporation.

Operations performed outside a municipal corporation’s territorial limits are also governed by the state constitution. Generally, a municipal corporation does not have the authority to supply services to areas outside its boundaries[vii]. But a municipal corporation, upon receiving authority from legislative acts, can spend funds on a public internal improvement that extends beyond its boundaries[viii].